Explanation: The demand for money tells us what makes people desire a certain amount of money.

• Since money is required to conduct transactions, the value of transactions will determine the money people will want to keep: the larger is the quantum of transactions to be made, the larger is the quantity of money demanded.
• Since the quantum of transactions to be made depends on income, it should be clear that a rise in income will lead to rise in demand for money.
• Also, when people keep their savings in the form of money rather than putting it in a bank which gives them interest, how much money people keep also depends on rate of interest.
• Specifically, when interest rates go up, people become less interested in holding money since holding money amounts to holding less of interest-earning deposits, and thus less interest received.
• Therefore, at higher interest rates, money demanded comes down.

Source: TMH – Ramesh Singh